The Best Investors Argue With Themselves

I met John in my hometown of Richmond, Virginia, probably 35 years ago. He didn't want to work the family dairy farm near Fredericksburg. As with many of the lifelong friends I made back then, John came to Richmond because Virginia Commonwealth University was a cheap way to get away from home.

Artistically, Richmond was a thriving town. Ellis Marsalis was about to take over VCU’s jazz program. There was an underground music scene that rivaled those in much bigger cities. GWAR was born in my second apartment...

John and I were roommates a couple different times. He got me started playing fantasy football in the late ’80s (I had Bo Jackson in 1990 when injury ended his career much too soon). I'd call John "farmboy" sometimes because he had that kind of sensibility and I liked giving him a hard time. He was one of the smartest people I've ever known. Very well read for a man in his early 20s.

John had this habit of talking down on himself all the time — calling himself dumbass and idiot and other names unsuitable for print. I asked him about it once because I thought highly of my friend. I thought he could go a little easier on himself.

I don't remember the exact words, but he told me the self-deprecation kept him honest, kept him in a mindset where he always had to prove himself. So he could never get over-confident and rest on his laurels.

I should've known I'd get an answer I didn't expect... leave it to a farmboy to have the idea that you've gotta rise to life's challenges every single day ingrained in his psyche while most young men are only thinking about partying and women.

My 54th birthday was a couple weeks ago. So yeah, I take a day off every now and again. But it's not because I think I've got it all figured out. In fact, I know I don't have it all figured out — and I know I never will. And that knowledge keeps me striving, keeps me looking for new information, for better answers.

Rigid Flexibility

Successful investing requires that we stick to our guns. We have to be able to see what the market is missing or underestimating. But at the same time, we have to be able to change our minds when new information requires it.

It's every bit as much science as it is art.

The secret is: know thyself. You have to be open and honest with yourself about what you know and what you pretend to know, about where you are competent and where you just wish to be competent.

The best example I can think of to describe this is permabears. Doesn't matter what happens, doesn't matter how good the fundamentals are — they will tell you it's all a bubble and everyone's going to hell in a bucket, probably tomorrow. Maybe the next day. But soon. Really soon.

Think about people who criticize the Fed all the time. Inflation! Value of the dollar! Deficits! You can make a compelling-sounding case that every ill confronting the U.S. economy is the Fed's fault.

Problem is: Do these people really know how the Fed works? Do you?

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Now, I've done my share of blaming the Fed for stuff. And I'm not backing off my contention that issues like wealth distribution and the rising mistrust of capitalism are direct outcomes of the Fed's response to the financial crisis (which, in fairness, were coordinated with Congress).

But most of the time, the Fed is a non-factor for the economy and the stock market. Like at the big turns...

It's the Economy...

Like right now, everybody is focused on what the Fed will do next. Will they cut rates to juice a slowing economy? Or will they sit tight and wait for more info?

Neither of these addresses the actual cause of the economic weakness: a trade war with China. Consider this opening to a Reuters article today:

More than half Chinese consumers have avoided buying anything made in the United States in support of their country in an escalating trade war, a survey suggests, posing a “significant” risk to U.S. companies.

The poll, conducted by London-based advisory firm Brunswick which surveyed 1,000 Chinese consumers, said 56% of respondents had said they had avoided U.S. products...

Then consider this statement from the president: “He [Powell] has to lower interest rates for us to compete with China...”

So which is it? Is it trade policy that keeps the U.S. from competing with China? Or is it interest rates? You can't have it both ways...

One more thing. I have recently cited manufacturing as a sign that the U.S. economy is weakening. Of course that's not good. But manufacturing makes up about 12% of the U.S. economy. Consumer spending and housing are far more significant. And the numbers for both are pretty strong.

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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